Interview: Arif Rachmat
How has the government encouraged downstream refinement of crude palm oil (CPO)?
ARIF RACHMAT: The government has shown strong commitment in helping the industry ensure demand stays strong in Indonesia. To boost biofuel consumption, especially palm oil-based biofuel, the government provided 18 regulations that were passed within a six-month period in 2015, which is unheard-of. In support of the government, the CPO industry has taken initiatives to increase domestic demand by subsidising biodiesel consumers over the next four years, thus stabilising CPO prices and promoting growth in the downstream industry. Therefore, to increase investor confidence, the uncertainty regarding the process of opening and running businesses must be significantly reduced, especially in terms of acquiring land.
What are the main challenges in achieving a more sustainable CPO industry?
RACHMAT: The palm oil industry has never been more sustainable, and the production of certified sustainable palm oil has increased significantly. However, one critical question to be answered by the industry is whether consumer companies are willing to pay the premium for certified palm oil products.
Another challenge is the issue of haze, caused by forest fires. Indonesia has always had to deal with this, but in 2015 El Niño struck longer than expected. Haze issues are a structural problem that needs further monitoring and prevention. Programmes to develop awareness on alternative plantation methods, such as mechanisation and quick -response units to control fires, are probably the best answer.
How do you assess the current balance between supply and demand in the palm oil industry?
RACHMAT: In regards to energy, biofuel has become mandatory, and in terms of food, palm oil consumption has continued to increase. In Indonesia there is strong demand for biofuel, both from the public and private sector. This demand has lead the oil palm industry to manage its production in such a way that palm oil prices do not go above the price of soybean oil. This is crucial, as once consumers switch from one product to another it is very hard to get them back.
What are the main barriers to reaching food self-sufficiency in Indonesia?
RACHMAT: It is all about land productivity. If costs are higher than in other producing countries, it means Indonesia has a very costly misallocation of subsidies for farmers. There are more consumers than there are farmers, so it is important to have good productivity. The issue in upstream right now is that production is individual and small- scale, not industrial, and does not have access to capital, technology or the direct market. New best practices for replanting are needed to ensure that each hectare reaches its maximum potential. To do so, we need to improve the governance of the farmers’ groups and cooperatives.
Will palm oil be important in achieving the goal of reaching 35 GW of power generation by 2025?
RACHMAT: The key lies in the biofuel consumption of both the public service obligation (PSO) sub sector, especially Pertamina, and the non -PSO subsector, especially Perusahaan Listrik Negara; the two targeted companies of mandatory biofuel. Currently, palm oil must first go to refineries and then into bio-fuel, but there are technologies that allow companies to go directly from CPO to power plants. The government needs to subsidise these cheaper, greener opportunities to reduce coal dependency. Converting palm oil waste into biomass and biogas is another way the industry contributes to sustainable energy. In terms of participation in the 35 -GW power generation plan, palm oil accounts for a low percentage, but it is still a significant percentage for the industry.
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